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Should you buy or sell SAIL: A mixed tale of two brokerages

Should you buy or sell SAIL: A mixed tale of two brokerages

Should you buy or sell SAIL: A mixed tale of two brokerages
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By Hormaz Fatakia  Nov 14, 2022 2:29 PM IST (Updated)

Kotak Institutional Equities' price target of Rs 55, implies a potential downside of 37 percent,

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Two brokerages have divergent views on whether investors should buy or sell shares of Steel Authority of India Ltd, after it reported a wider-than-expected net loss for the September quarter.
Brokerage firm Citi has a buy recommendation on the stock with a price target of Rs 100, implying a potential upside of 18 percent from Friday's closing levels.
On the other hand, Kotak Institutional Equities is asking investors to sell SAIL for a price target of Rs 55, which is even lower than the stock's recent 52-week low of Rs 63.60.
SAIL reported a net loss of Rs 330 crore for the September quarter, compared to a CNBC-TV18 poll, which pegged the net loss at Rs 220 crore.
The company's calculated EBITDA per tonne fell 90 percent from last year to Rs 1,746 from Rs 17,790 during the same period last year. Even on a sequential basis, realisations declined 18 percent, a sharper drop than expectations.
SAIL attributed the weak operational performance to higher prices of imported coal and slowing demand for steel across economies. The company's net debt also rose to Rs 30,000 crore at the end of the September quarter.
Citi is maintaining its bullish stance on SAIL with a hope that the company's EBITDA per tonne has bottommed out based on the current spot trends.
Although the brokerage sees limited visibility on catalysts currently, it expects the current quarter to be the bottom for global steel demand.
On the other hand, Kotak Institutional Equities says that SAIL's EBITDA for the quarter was 54 percent below their estimates due to higher costs. SAIL's expenses jumped 27 percent from last year during the quarter.
With a sharp increase in working capital requirements and a potential pick-up in capex, Kotak believes that SAIL's deleveraging phase is behind them.
The brokerage has cut its EBITDA estimate for SAIL for the current financial year by 13 percent to factor in the higher costs. It has also cut its price target to Rs 55 from the earlier Rs 60 citing lower earnings, higher debt, and premium valuations.
Shares of SAIL are trading 2.6 percent higher at Rs 87.65.
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